London — Russia's Gazprom and Novatek should develop an integrated strategy to supply their final consumers amid fierce competition, according to Tatiana Mitrova, director at the Skolkovo Energy Center.
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Speaking at the LNG Congress in Moscow this week, Mitrova described the global LNG market as a "cruel battlefield," pointing to new suppliers competing with Russia, including in Qatar, the US and Australia.
At the same time, demand has become highly unpredictable, with buyers now seeking more flexibility and short-term commitment.
"I was in Singapore last week and Asian participants were talking about 50% of the contracts being short term by 2025," she said. "Although that is a wishful thinking, it shows the mood." Companies such as Total and Shell have increased their portfolios to adapt to demand flexibility requirements, she said.
Geopolitics has also become more uncertain with the emergence of embargoes and sanctions, which is counterproductive to the market development. she said.
Versatility, creativity and speed are key to success in the evolving market, she said.
Gazprom and Novatek, the two leading Russian gas and LNG players, also compete with each other as both export to Europe and Asia.
Mitrova pointed to a reduction in Gazprom's exports to Europe in December, while LNG exports from Novatek's Yamal LNG to Europe due to low Asian prices and uneconomical spreads.
In November and December, Russian natural gas exports to Europe fell 6.3 million cu m/d and 0.4 million cu m/d year on year respectively, S&P Global Platts data show.
Russia could implement an integrated export strategy like it did with oil, Mitrova suggested, adding that there was an opportunity to provide flexible supply with gas for baseload and LNG for peak demand, for instance.
Gazprom's share of the European gas market in 2018 rose to 36.7% from 34.2% in 2017. Currently, 75% of its European sales are secured by long-term contracts.
The trend is set to continue with the expected implementation of the 55 Bcm Nord Stream 2 pipeline to Germany, she said.
On the other hand, Novatek is expanding its position as national LNG champion with capacity expansion expected to increase by more than 20 million mt/year by 2023-24.
Russia currently exports LNG from two plants -- Gazprom's 10 million mt/year Sakhalin 2 and Novatek's 16.5 million mt/year Yamal LNG.
Russian LNG exports are expected to grow significantly by 2025, due to the 19.8 million mt/year Arctic LNG 2 and the 10 million mt/year Baltic LNG.
Russia's share of the global LNG market has the potential to grow to 12-13% by 2025 from 5% in 2017, Mitrova said.
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